Stock Market Correction Presents Buying Opportunity for Long-Term Investors, Says Kotak AMC’s Nilesh Shah

Investors Should Accumulate Quality Stocks Instead of Reacting to Short-Term Market Swings

Mumbai, March 5, 2025 – With Indian equity markets experiencing volatility and Foreign Portfolio Investors (FPIs) continuing to offload holdings, Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company (AMC), has urged long-term investors to take advantage of the ongoing correction and accumulate high-quality stocks at reasonable valuations.

Speaking in an interview with CNBC-TV18, Shah emphasized that while short-term market trends may seem discouraging, valuations have now normalized, presenting a strategic buying opportunity for investors with a longer time horizon.

Market Valuations Back to Fair Levels

Shah pointed out that the Nifty is now trading slightly below its historical average valuation, indicating that the excessive froth observed in the past has been corrected.

“This is a fair-value market. The excesses of the past have been corrected, and now is probably the right time for long-term investors to start accumulating,” Shah stated.

However, he cautioned against aggressive buying at once, suggesting that investors adopt a systematic approach instead of attempting to time the market.

“Never stand in front of a running train… It is your opportunity to accumulate, not to buy everything today,” he advised, indicating that as long as FPI outflows continue, markets will remain under pressure.

What Triggered the FPI Selloff?

While FPIs are not a homogeneous group, Shah outlined three key reasons why these investors turned net sellers in recent months:

1. Disappointing GDP Growth and Corporate Earnings

   • India’s GDP growth numbers released in September and December 2024 did not meet market expectations.
   • Corporate earnings for Q2 and Q3 FY25 also failed to justify existing valuations, leading FPIs to book profits and reduce exposure.

2. Global Market Shifts Favoring the US

   • The US administration’s renewed focus on the “Make America Great Again” economic policy has drawn liquidity away from emerging markets.
   • Other emerging economies, including China, are also witnessing FPI outflows, increasing overall selling pressure.

3. Rupee Depreciation and Trading Strategies

   • The Indian rupee has been overvalued, prompting speculation that it may decline further.
   • Shah believes that FPIs positioned their trades anticipating a weaker rupee, a declining Indian market, and a stronger US market.
   • “Much of that trade is now behind us, but at the moment, the momentum for FPIs is still on the selling side,” he noted.

Identifying Market Bottom: When Will the Selling Stop?

Although market corrections present an opportunity, Shah emphasized that investors should watch for signs that indicate a potential market bottom before deploying capital aggressively.

According to him, three key indicators will signal that the market is stabilizing:

1. End of Aggressive FPI Selling

   • If FPIs shift from being aggressive sellers to net buyers, it will indicate that valuations have become attractive.
   • Shah highlighted that not all FPIs are selling—sovereign wealth funds and university endowment funds have been net buyers.

2. Attractive Valuations

   • If forward price-to-earnings (P/E) ratios fall to around 14-15 times forward earnings, it would indicate that the market is undervalued and could be close to a bottom.
   • “At the end of the day, stocks are a slave of earnings. If valuations become cheap, then the market has bottomed,” Shah said.

3. Geopolitical and Trade Policy Reversals

   • Ongoing trade tensions, particularly with the US imposing tariffs on key trading partners like Canada, Mexico, and China, have negatively impacted global markets.
   • If these trade policies are reversed or softened, it could boost sentiment and mark a market turnaround.

Should India Change Tax Policies to Retain FPIs?

With FPIs reducing exposure to Indian equities, some market participants have suggested that capital gains tax adjustments could help retain foreign investment. However, Shah believes that taxation should be fair for all investors—domestic and foreign alike.

“An investor is an investor, whether domestic or global, and they should be treated equally. Lowering capital gains tax does not guarantee higher market returns,” he argued.

Instead, he stressed that India should focus on creating an environment of stable policies, earnings growth, and good corporate governance to ensure long-term investor confidence.

India Still a Strong Investment Destination

Despite the ongoing challenges, India continues to outperform other emerging markets over the long run.

“India has delivered better returns than China, Brazil, Russia, and South Africa. Yes, the last seven months have been tough, but over the long term, investors have made money here,” Shah highlighted.

He urged investors not to judge the Indian market purely based on recent performance but to look at its consistent track record of delivering returns over multiple market cycles.

Conclusion: Stay Invested and Accumulate Selectively

With valuations now at more reasonable levels, Shah maintains that this is a favorable time for long-term investors to accumulate quality stocks. While short-term volatility may persist, investors with a multi-year horizon stand to benefit from the current market correction.

His advice? Stay patient, accumulate gradually, and focus on businesses with strong fundamentals rather than making decisions based on short-term price movements.

“Markets move in cycles. If you stay invested in strong companies, corrections like these will eventually present wealth-building opportunities,” Shah concluded.